Francois's blog

Sunday, March 28, 2010

The health care reform bill is easy to repeal

Liberals have been saying for the past few days that once passed, entitlements can never be repealed. Of course, this is wrong, Medicare catastrophic was repealed, and liberals themselves are essentially repealing Medicare Advantage in the current bill to pay for the new entitlement. And Social Security and Medicare have been vulnerable to cuts in the past, to say nothing of how easy it has been to cut anti-poverty programs.

But let's analyze whether the current health care bill will be as popular as Medicare. Here's the major differences between this program and Medicare:

Medicare is an entitlement in which those who receive the benefit get something worth far more than what they paid in. Those who pay pay only a little bit, those who receive, receive something wonderful. That's why it's popular. How does the current health care bill measure up?

First, unless you qualify for a rather large subsidy, you aren't getting some great benefit. YOu are getting pretty much what you pay for. All the bill really does is make you buy insurance, and if you don't have the money to buy it, it gives you some help. So the only people really seeing a benefit are those who are poor to lower middle class.

However, the way the bill is written, the subsidies increase SLOWER than medical inflation. So the benefit is self-cutting. Poor Americans will start having trouble affording insurance very early on. Lower middle class Americans will start feeling the pinch soon as well. So unless Congress makes changes in by 2020, we'll be right back where we started: with 35 million uninsured. And paying a penalty. This is supposed to build political support for the program?

But that's not all. Health care reform has other losers: elderly people will have less access to doctors and hospitals because the bill cuts payment rates. The Medicare actuary estimated that 20% of hospitals would stop taking Medicare. Medicare Advantage essentially goes away. Elderly people do see the donut hole for part D close, but it's hard to believe that seniors would benefit from gutting part A in order to solidify Part D.

Let's face it. The only hard to kill entitlements are elderly entitlements. The elderly receive no benefit from this bill, in fact, they are primarily the ones paying for the bill. Unless Democrats decide to just not cut Medicare and let the deficit increase further, the elderly will favor repeal. And if the elderly want something, the elderly get it.

Ah, but there's more! Many employers are going to drop their insurance plans and put people into the exchanges. Others have already said their costs will increase under reform, and those costs will be passed to their employees. What will be the position of people who lost their employer health care on repeal of the bill?

It's really simple math. Medicare and Social Security are a benefit for the few, paid for by the many. The few get a great benefit, the many don't pay enough to get upset about it, and they figure they'll benefit when they get older anyway. The health care bill, by contrast, makes everyone pay so that everyone can benefit. But the way it's designed, more people will lose something than gain something, and the losers will lose more than most of the gainers gain.

So by my figuring, Republicans don't need to act fast. The longer this is in place, the more opposition will be built up against it. There will be a small faction of people, mostly non-voters, who benefit and will try to keep it, but the elderly, people on workplace insurance, the rich, and the lower middle class who will have a new obligation they can't afford, will support repeal.

Of course, the Democrats could have been lying this whole time and intend to do what they did with the doctor fix: constantly "fix" the bill, but not pay for those fixes. They had to pass something deficit neutral, but the fixes won't have to be. And I think they planned that all along.

Friday, September 25, 2009

Obama's greatest challenge

It's not now. Getting us out of recession is the easy part. Voters blame the recession on Bush, so Obama either gets credit for getting us out, or he ends up not getting blamed for failing to get us out. Not much downside for the President.

No, the real challenge for Obama is going to be the next wave of prosperity. How could that be a challenge, you ask? Because of our huge debt. During good times, it must come down to sustainable levels, or better yet, we should be running surpluses. But Obama's own forecasts call for the deficit to still be in the $600 billion range, or 4% of GDP, by 2019.

The upshot of that is that when we next go into recession, the government will crash. There will be no room for fiscal stimulus. There won't even be a way for the government to meet its current obligations. Let's do the math:

Obama's budget outlook assumes 8 good years between 2011 and 2019. That's some serious optimism, but let's go with it. Eight solid years of prosperity, and the best we can do is get the deficit down to 4% of GDP? According to his plans, the national debt would be somewhere between 85-95% of GDP. Pretty dangerous territory.

So what happens if we go into 2020 with that $600 billion deficit and a recession hits? Armageddon, basically. Normal recessions typically double budget deficits, so let's conservatively assume a $1.2 trillion deficit for 2020. But that's probably way too conservative. The President's tax plans rely excessively on the top 1%, whose income is more volatile and drops precipitously during recessions. So the deficit could easily reach $1.5 trillion. But wait! Medicare's out of money! Gotta shore that up. Call it $1.7 trillion. That's before stimulus and that one year tips us over 100% Debt-to-GDP.

So what's Obama's challenge? It's not good enough to slowly lower the deficit over the next few years. Once the recovery sticks and we are in boom times, Obama must aggressively cut spending. We must get to surplus by 2015, preferably sooner, or the next recession will be budgetary armegeddon.

As with global warming, the longer he waits to make the tough decisions, the more expensive those tough decisions will be. In 2012, he can make minor cuts to social programs and defense and reform entitlements. If he doesn't, then in 2020, his successor will have to basically end most of those entitlements and slash social spending to nothing. We'll be back in the 19th century as far as the role of the federal government is concerned. The progressive project will have failed spectacularly.

Sunday, September 20, 2009

Predicting the far future

No, not who is going to win the football games today, or who is going to be President in 2012. I'm talking way ahead, to 2100. And these are tough ones:

1) What views that are pretty much mainstream today will be considered barbaric in 2100? Obviously, when we look back at 1900 we think of racism, sexism, colonialism, totalitarianism(democracy was still a bit radical in most of the world in 1900), and religious prejudices(especially anti-semetism).

2) What views that are mainstream today will be seen as overly wishful and naive thinking? Most of the time we are taught in history classes about how barbaric and stupid our ancestors were, but humans are complex creatures. There was also a lot of idealism that turned out to be well, fuzzy-headed, naive, or downright stupid. Think of the peace movement in the 1920s between the wars, which culminated in the Kellogg-Briand pact, which outlawed war. yeah, that was a shining moment of realism right there. Or Marxism. Or the genuine idealism behind colonialism, which wasn't done JUST to exploit people, it was also to bring them the benefits of civilization. A lot of prominent progressives in the late 18th/early 19th century were pro-colonialism on those grounds. Or the temperance movement, which thought that society would be much better off if alcohol was outlawed. What naive things do we try to do today that future generations will look at us and think, "WOw, their intentions were good, but how did they ever imagine THAT would work?"

3) What from our popular culture of the late 20th/early 21st century(60s to the present) will stand the test of time and be considered essential classical art when the 22nd century dawns? Star Trek? Michael Jackson, the Beatles? Pac Man?

Here are the answers, in my opinion:

1) I think it's pretty obvious that we'll be over the anti-gay thing. We're already almost there. I also think that the idea of innate human superiority over animals will be considered just as barbaric as innate superiority of whites over blacks was. Not that humans aren't more intelligent than animals, of course we are. But is a human instrinsically "worth" more than an animal? 99% of you would probably say yes, but when you think about it, it's a belief based on the fact that you yourself are human, possibly backed up by religious dogma. I think our descendants will look back on that belief as being pretty barbaric, especially considering the horrors we inflict on animals, such as cosmetic testing or killing them to make coats. I think even meat will eventually be grown without killing an actual animal. Cloning technology and stem cell advances may make it possible to only grow parts of animals that don't think and feel. Like growing a chicken wing. Or maybe things will be like Star Trek and we'll just be able to replicate food out of the air.

Finally, I think that economic liberty will be the big battleground throughout the 21st century. Liberals have successfully fought for freedom to do a lot of things. The 20th century certainly belonged to them when it comes to civil rights, free speech, rights of defendants, workers' rights, and sexual freedom. But they tend to hold restrictive views on economic rights. They've restricted property rights, imposed onerous taxes on us, made it hard to run a business(or start one), and have not been above fomenting class hatreds. The trend over the last few hundred years in almost every sphere of human life has been towards more freedom. I don't think economic rights will be any different. I think that our descendants in 2100 will look back at high taxes and restrictions on commerce as unacceptable infringements on human rights. That doesn't mean that there won't be any regulations, but business regulation will more resemble today's regulation of sexual practices, whereas today it more resembles 1950s-era regulations on sexual practices. All that is "icky" is regulated regardless of whether it actually harms anyone. In 2100, the only business regulations will be on things that actually harm people directly, rather than things that offend liberals primarily because they don't run a business or just don't like business owners.

2) Diversity will be one for sure. Multiculturalism and diversity are just absurd the way they are practiced now and almost anyone can see it, but yet we are still practicing it. In the future, even thinking about color or sex as part of a hiring process will be considered strange. But where there are legitimate cultural or genetic differences, our descendants won't hide from them anymore. And the idea that all cultures are inherently equal will be laughable. The way we think about race and culture today is a hangover from the negative ways we thought about those things fairly recently. Once that hangover is gone, people will start to see these things more lucidly and without the baggage that we carry today.

I also think that we're repeating the stupidities of the 1920s peace movement in many ways. There are many people who actually think that there will never be another great war between nations. I think that by 2100, we'll see one, possibly two, really disastrous wars. I do think that eventually war will no longer be a fact of our existence, but it hasn't happened yet and it probably won't have happened by 2100, either. The biggest mistake we are making in the West in regards to our views on war is thinking that we can wage a war by strict rules that the enemy doesn't have to follow. It's literally impossible for any Western nation to win a war these days decisively. I think that in 2100, people will see a difference between war and law. War is what happens precisely because the rule of law has failed. Trying to uphold rule of law in the middle of a war is nonsense. You fight to win and you do whatever it takes to win. What will be most laughed at in 2100 was this idea that even many modern military experts hold, that you win a war by winning the "hearts and minds" of the enemy population.

Finally, I think that what many idealistic futurists predict, a united world under a single government, won't happen. In fact, I think that in 2100 there may be as many as 1000 nations, or at least most nations will use a decentralized approach to governance. People are diverse. In different regions they have different values and different ideas of how things should be. It makes no sense to try to have a one-size-fits-all way of doing things directed from some central world authority.

3) Big action-packed blockbusters won't hold up, because they'll still be making them in 2100, except they'll be even better and they will probably be holographic. And interactive. So what's the Gone With the Wind of the late 20th/early 21st century? I don't know. Whenever I think of a movie with a really good plot that was made since 1970, I think about how dated it will appear. We have a romanticized view of our recent past in some ways, so that's why we still like old cinema. And we still like stuff from the 70s and 80s, because we grew up with it. But will any of this be interesting to the average person in 2100? I think they'll be interested in the early days of cinema just like us, but middle eras tend to get short shrift when it comes to art. Will Titanic still capture people's hearts, or do we like that just because the Titanic fascinates us now? Maybe people in 2100 will have forgotten about the Titanic. Alien movies like ET will probably seem silly, especially if we've made first contact by then, or even if we've merely found remains of an older alien civilization. Star Wars I don't expect to survive past 2040 as a cult phenomonon. Star Trek will probably have more staying power, but by 2100 might just be a well known curiosity of how the people of the 20th century viewed the future. Even now, I laugh at some things I see on Star Trek or ST: Next Generation because they sometimes talk about things just being discovered in their time that we take for granted now. So hell, I don't know when it comes to movies.

Music is easier. The Beatles of course will still be big in 2100, although I think more known for their early years than the psychedlic and "give peace a chance" later years, which will be seen more as period music. The earlier stuff will be considered timeless. I think that disco may actually be even more popular in 2100 than it is today because it was the first real dance club music. I figure people will still want to get together for some dancing in 2100, so dance music will still be big and disco was the first real dance music for the masses. So the Bee Gees may be bigger than the Beatles. Springsteen, Dylan, and the better rap music will probably also hold up. As much as I love heavy metal, little of it will probably survive to 2100. There will always be heavy music, but I don't think there will be much interest in the history of it, except for maybe Sabbath, Zeppelin, and maybe Metallica.

Sunday, August 23, 2009

President telling a whopper on health care

At two seperate appearances, the President stated that health care reform would cost $80 to $90 billion/yr. He makes that assumption based on the $800-$900 billion cost of HR3200 over 10 years.

Here's what he doesn't tell you: the plan doesn't go into effect until 2013. So that $800-$900 billion cost isn't over ten years, it's over six. The CBO says that in 2019, the bill will cost $202 billion. And will continue to grow faster than revenues after that into the longterm, widening the deficit and pushing us headlong towards bankruptcy.

The left loves to whine about all the right-wing lies, but their credibility might be helped if the President himself wasn't telling such frequent whoppers of his own.

And while I'm on the topic, the ever-changing rationale for health care reform reminds me of something that happened under the last adminstration. Wonder what that was?

Tuesday, August 18, 2009

Evidence that the stimulus was a waste of time

Why are Europe and Japan pulling out of recession before we are? that almost never happens. And Paul Krugman was bitching for weeks during our own recession debate how the US is the only one trying to do a serious stimulus and that without world cooperation it won't do much good.

Well, we did do a stimulus and we're doing about as well as was predicted without one. Meanwhile, Europe and Japan are recovering sooner than expected.

I have a new blog

I will still be keeping this blog for general commentary, but I've started a new blog dedicated to commenting on issues brought up by Matt Yglesias' blog. Yglesias fans or haters will appreciate this more than the casual blog reader who isn't familiar with him, but for political junkies it does contain some pretty good political commentary, if I do say so myself.

And if you're a political junkie, why aren't you reading Matt Yglesias' blog already?

Liberal Democrats making empty threats

Would liberal Democrats really not vote for a bill without a public option? We're hearing threats that without a public option, 100 Democrats will vote against it, which would mean no health care bill at all, since a bill with a public option can't pass and a bill without one can't pass.

Personally, I don't think they would, and it's not about guts or spine, it's about incentives. the Blue Dogs come from districts that are against the public option vehemently. If no bill passes, it's no skin off their backs.

So that leaves liberals with an empty threat, and the Blue Dogs know it.

Monday, August 17, 2009

On bubbles

There's been a lot of posts on Matt's blog recently, as well as on Brad Delong and Kevin Drum's blogs, about bubble. How to detect them, what to do about them.

Now I'm not a financial expert. At best, I'm financially literate and not a bad investor. I saw the stock market bubble and the housing bubble before they popped, as well as the oil bubble. When things get insanely overpriced, it's not hard to tell. The only part that's impossible is figuring out when investors will finally realize how fast prices have outpaced value and start selling. But from the perspective of policymakers, they don't need to know that. They just need to know that a market is fundamentally overpriced by quite a bit. You don't know precisely when a bubble starts or when it's going to end, but you know when one is going on once it's really gotten inflated.

But that's not really relevant either. What causes bubbles? Is it that investors aren't aware of them? Many investors aren't, but I think most investors are. They just assume it will make them big profits and they'll get out and some other sucker will be holding the bag, usually inexperienced investors who hear during the height of the bubble how they can make massive returns with little risk. So it's probably not ignorance. It's greed.

So how do you deal with that? I have an idea: why not jack short term capital gains rates to 50%? And to encourage investment for the long term, reduce long term capital gains to a nominal amount like 10%, or even 5%. If you're worried about that being regressive since rich people tend to be more likely to have long term investments, you could just keep the current long term capital gains rate on people making more than $250,000 and reduce the capital gains rate to 10% for everyone else if they hold an investment for at least five years.

Something that was particularly to blame for the housing bubble was the recent favorable treatment of capital gains on the sale of a primary residence. Taxes change incentives. Especially for smaller investors, what could make more sense than to invest in your home, since when you sell it, you don't pay capital gains taxes unless your profit is $250,000 or more if you're single? Since it also applied to second homes, it encouraged house flipping. That not only encouraged people to overpay for housing, it also led people to put all their eggs in the real estate basket. The favorable treatment of capital gains on housing should be eliminated, or at least require that the home be owned for longer before sale.

Monday, July 06, 2009

Don't blame Obama for the economy

In regards to Biden saying they "misread" the extent of the recession, John Boehner and other Republicans are attacking Obama for presiding over the loss of 2 million jobs since he took office.

This is just stupid, for reasons of simple reality and political strategy. Everyone knows that this recession started under the Bush administration. Obama is not responsible for the recession unless you can point to something stupid he did to harm the economy. Since the only candidate policies that might do that(cap and trade, tax increases) haven't gone into effect yet, or even been signed by the President, it's silly to accuse him of economic mismanagement.

The only thing Obama is responsible for is wasting all that stimulus money. That's where the Republicans should be hitting him, especially when you've got prominent liberals calling for a second stimulus before the first one is even half spent. Focus on the failed stimulus like a laser and don't let another one get by you. The nation can't afford it.

Attacking Obama on the economy is just stupid, because voters know Republicans got us into this mess, and because if Obama senses that it is hurting him, he'll do something stupid like sign another stimulus. The stimulus is the failure, not Obama's overall economic management.

The war in Afghanistan

With the war in Iraq winding down after it took a good five years to come up with a winning strategy, the Obama administration is now focusing on winning the war in Afghanistan. This is all good.

However, despite what the Iraq war cost us, I think most of us realize that Afghanistan is a much tougher job. Since the load is being widely shared among NATO, and we have fewer troops over there, the casualties don't seem as high. But at least for the last three years, they have been near Iraq levels. With more troops being committed and us getting more serious about fighting the remnants of the Taliban, our casualties will continue to rise, probably to the point where we're losing as many of our men and women as we did at the height of the Iraqi insurgency. And this may go on for a long time, much longer than it went on in Iraq.

The generals say they don't have enough troops yet. Obama has made a very good decision to raise troop levels to 66,000, but that's just not going to cut it. That's not Obama's fault, that's probably all that can be committed until we are first out of Iraq, and second, our military has had a couple of years to recover from the Iraq debacle. But eventually, we are going to have to ramp up to near 200,000 if we want to actually win this war. That won't happen until 2013 at the earliest. Once we do get to that troop level, we can probably win the war in another four to six years, given good political and military leadership.

I think we're going to have significant forces in Afghanistan until 2020, and I also think we'll incur 10-15K combat fatalities. Iraq has been in the headlines since 2003 while Afghanistan has been a sideshow, but I think when the histories are written, Afghanistan will be the big war and Iraq the sideshow. Iraq will be seen as a blunder that diverted troops from the real battlefield and made our eventual victory that much harder.

For those who think we won't have the political will to expend that much blood and treasure in Afghanistan, think again. 3000 Americans died because of Al Qaeda and the Taliban. The threat that they pose still exists. There's no way we can retreat from Afghanistan. It's not an elective war like Iraq was, or the Soviet Afghan war was. We either win, or we are defeated. Al Qaeda and the Taliban cannot win a political victory because political victories are only possible in elective wars like Vietnam or Iraq. So the only question to answer is, how long will it take for us to defeat them, not whether we'll stick it out to the bitter end.